Best Practices for Your Nonprofit Audit

Are you stressed because you have an audit coming up? Don’t be! Audits need not be painful, IF you prepare for them. To help, here’s some of our best advice for making your next audit painless and using it to align your nonprofit’s financial practices with your mission.

Selecting the Right Auditor

Work with your board, especially the finance or audit committee, to define key attributes you want in an auditor, and to plan your selection process. In particular:

Talk to peer organizations for overall guidance and to get specific referrals.

Allow plenty of time to plan and execute a request for proposals (RFP), if needed.

Look for auditors with relevant experience. If you’re a small membership-driven organization, don’t use an auditor that specializes in large grant-funded nonprofits.

Find out what level of detail your auditors will provide. Just the basics to satisfy reporting requirements? Or a comprehensive analysis that compares you to peers?

Ask your auditors how they can help you if, on the off chance, they uncover fraud.

Planning and Preparing for Your Audit

To ensure your audit goes smoothly, you want to plan ahead as much as possible and keep things as simple as possible for your finance team and auditors. To help the process:

Collect relevant documents and figures year-round.

Establish a clear timeline and work milestones with your auditor.

Hold a kickoff meeting that includes both the audit staff and your own finance team, so everyone is in sync about timetables and duties.

Prepare electronic and hard copies of an “audit binder” with standard documentation for bank accounts, investment accounts, fixed assets, payroll, and so on.

Designate one person – probably your controller – as the single point of contact for when the audit team has questions.

Keeping Your Audit Costs Down

Audits are easier when they’re more efficient and less costly. You can achieve this when you:

Work around your auditors’ busy season

Make the audit as easy as possible, for example, by organizing materials in advance

Avoid changing auditors unless you have a pressing reason to do so

What Your Auditors Are Looking For

As they assess your organization’s financial position, auditors essentially look at how money comes in and goes out, and whether you handle it appropriately in between. They want to see:

Strong internal controls over access to money and records to prevent mistakes or fraud

An audit trail that clearly tracks transactions to sources of revenue

Reports that clearly show how funds are used, and other relevant financial activities